Bharti Airtel ready for battle

The Bharti Airtel stock has gained about four per cent in the past couple of trading sessions on brokerages' upgrades, given its robust spectrum holdings, gains on revenue market share and potential improvement in Africa operations.

As the launch of Reliance Jio's mobile service roll-out is the key risk, indications that the company is best placed to counter the new entrant have led to buying in the counter in recent sessions. The company in recent investor interactions has said it is well placed in terms of data spectrum, both in 3G and 4G LTE (long term evolution) spectrum in 22 markets.

Analysts at HSBC Securities say with pan- India 3G and 4G spectrum holdings, Airtel is much better placed than the competition to capture data market share, as it has more flexibility in transitioning data to the 900 Mhz spectrum. Further with its spectrum in the 900 Mhz band in six circles, the company could challenge the 800 spectrum advantage of 4G entrants, they add.

With Airtel's improving spectrum and competitive positioning in the domestic market, Bank of America Merrill Lynch now expects better revenue growth to increase Airtel's earnings per share in FY18-19 by three to six per cent.

The data boom is the other positive. Though growth in this segment has slowed off late for the industry, share of data revenues to mobile service revenues for Airtel, according to ICRA, is expected to increase to 34 per cent, from the current 19 per cent over the next five years. The issue, however, will be on pricing. Given the competition and risk of aggressive pricing, data growth could come at the cost of lower realisations. Given that the top three continue to consolidate their revenue market share, further competition (aggressive pricing, weak balance sheets) will only lead to further consolidation. The upside then will be carved out between the top four-five telcos, instead of the seven-eight players currently. The three incumbent operators, especially Airtel and Idea, have gained 90 per cent of incremental revenues in FY16, compared to 60 per cent in FY14 and FY15. Airtel's share now stands at 31.5 per cent, from 30.7 per cent in FY15.

The Street will also keep an eye on Bharti's Africa operations, which have been making losses despite steep investments. While the company has monetised its tower assets ($1.8 billion so far) and is focusing on high revenue markets with upsides in data growth, the volatile currency (markets like Nigeria) is playing spoilsport. This week's events pertaining to Nigeria though will have a bearing on the Airtel stock.

While Bharti's management is confident of its monetisation and restructuring moves, analysts still view Africa with scepticism, and don't expect immediate improvement.